Sikalidis, A., Bozos, K. orcid.org/0000-0003-2914-6495 and Voulgaris, G. (2023) Asymmetric effects of fair value adjustments on dividend policy. International Review of Financial Analysis, 90. 102933. ISSN 1057-5219
Abstract
We examine the effect of unrealized fair value adjustments resulting from derivatives classified as cash flow hedges on the dividend policy of UK firms. We theorise and empirically demonstrate that companies differentiate between positive and negative fair value adjustments. When unrealised gains are recorded under ‘Other comprehensive income’ firms do not increase dividend payouts; as such it can be argued that legal requirements surpass potential signaling considerations. However, for unrealized losses, firms reduce their dividend payouts, even when regulatory arrangements do not necessarily mandate this. Furthermore, firms adjust their dividends based on unrealized losses under different levels of firm risk, future growth opportunities and financial distress. Overall, our findings suggest that managers display a conservative behavior aiming to safeguard company assets, by effectively treating unrealized gains as ‘transitory’ and unrealised losses as ‘persistent’.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 Published by Elsevier Inc. This is an author produced version of an article published in International Review of Financial Analysis. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Dividend policy; Fair value accounting; Fair value adjustments; Other Comprehensive Income; Conservativism |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 09 Oct 2023 14:20 |
Last Modified: | 15 Mar 2025 01:13 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.irfa.2023.102933 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:203204 |